SBI to stop fixed rate home loans for above 10yrs

State Bank of India (SBI) today announced the discontinuance of fixed rate home loans for tenures above 10 years in view of "uncertainties" on the longer-term interest rate scenario.

The country's largest bank also hiked interest rates on fresh home loans by 25-75 basis points after resisting pressures for increasing rates. Housing
Development Finance Corporation (HDFC) was the first major home loan provider to hike interest rates by 50 basis points across the board earlier this month.

ICICI Bank followed by an identical hike in interest rate on its home loans. The largest private sector bank, in fact, increased its prime lending rate (PLR) for corporates twice in a span of just over a month. In early January, it increased its PLR by 25 basis points to 11.25 per cent and again this month by 50 basis points to 11.75 per cent.

An SBI official said the interest rate hike will not be applicable to existing floating rate loans as the bank's benchmark prime lending rate, called State Bank Advance Rate (SBAR), has not been changed.

The decision to stop offering fixed rate home loans for over 10 years was
taken as the bank does not want to take interest rate risk on longer terms
when interest rates are moving up. Fixed rate loans form about 8-9 per cent of SBI's total home loan portfolio of Rs 30,000 crore, the official said.

SBI said the floating rate for loans between five and 15 years will be 8.75
per cent as against 8.50 per cent earlier, and for loans up to 5 years to 8.5
per cent from 8.0 per cent. Interest on fixed rate loans has been increased
to 9.25 per cent from 8.5 per cent for up to 5 years loans and to 9.5 per
cent from 9 per cent for loans up to 10 years.

The recent interest rate hikes followed a 25 basis points increase in the
reverse repo rate to 5.5 per cent by RBI on January 24, to contain
inflationary pressures.

Home loans are among the most finely priced lending products and banks are finding it difficult to resist upward pressures on interest rates. Home
loans increased by 50 per cent in 2004-05 and among the high growth segments within retail loans.